By SKM
February 18, 2025
ISLAMABAD: The local refineries and Oil Marketing Companies are likely to sustain a loss of Rs33 billion by the end of June 30, 2025, just because of the budgetary measure of sales tax exemption on petrol diesel, kerosene and LDO imposed in Finance Bills for FY25 and if the status quo continues the strategic refineries that ensure maximum fuel for armed forces in an emergency or war-like situation would ultimately close down their operations.
“Refineries pay taxes on the import stage which cannot be recovered because of the sales tax exemption measure. This has not only made the $6 billion upgrade projects of refineries the non-starter, but is also causing a colossal loss to the operations.”
The relevant officials in the Petroleum Division said so far by December, refineries in their operations braved the damage of Rs17 billion which may end up with a total loss of Rs35 billion by June 30, 2025.
“The OMCs which have so far failed to get the refunds of Rs70 billion from FBR are also likely to sustain Rs15-20 billion by the end of the current fiscal just because of sales tax exemptions.”
Chairman of Oil Companies Advisory Council Mr Adil Khattak when contacted said that since the budgetary measure of sales tax exemption imposed in Finance Bill 2024-25, refineries are unable to adjust up to 80 percent of their input sales tax and more importantly OMCs are also unable to adjust input sales tax of RS71 billion on petrol and diesel as of June 2024. He said that this budgetary measure has increased the cost of the Refinery Upgrade Project by $700 million leading to a significant funding gas and making the project unviable. He said that annual operating cost of local refineries has increased by $60 million and OMCs by $ 160 million. Mr Khattak says that the estimated impact of sales tax is about Rs33 billion per annum which has become no-recoverable for the oil industry because the prices are regulated.
Petroleum Division says that in the past various proposals were discussed with FBR and Finance Division including the imposition of 3-5% sales tax to make upgrade projects viable and sustainable and increasing the inland freight equalization margin (IFEM) by Rs2 per unit.
However, on a proposal of 3-5 percent GST on POL products, according to the officials, IMF said petroleum products are not essential items so the GST if the government wants to impose should be at 18 percent such as it is imposed on electricity and gas. However, 18 percent GST on prices of POL products (petrol and diesel) would result in an increase of prices by Rs45 per liter. “The IMF asked the government n to reduce the petroleum levy by Rs45 per liter on petrol and diesel to maintain the existing prices of petroleum products.”
“However, the federal government didn’t buy this proposal fearing a loss in recovery of revenue through petroleum levy.” They said that all the revenue through petroleum levy rests with the federal government, but in case the 18 percent GST is imposed, the main chunk of the revenue would go to provinces. So this proposal of the IMF didn’t work because of the federal government. “On the proposal of increasing IFEM by Rs 2 per liter, the federal government fears it would result in an increase in prices of petrol and diesel by Rs 4 per liter.” Ends
To a question, if the government will undo the measure of sales tax exemption in the budget for FY26 to be announced in June, 2025, the officials said that if the government didn’t correct it, then the project to upgrade refineries could not start. And refineries in existing shape would no longer be operational if the status continues. Ends
